Reliance, Mahindras, Infosys, Wipro, Biocon, Bharat Forge... the list goes on. Corporate India is in a hurry to invest in special economic zones (SEZs). The lure seems to be the promised fiscal, tax and regulatory incentives. And against the backdrop of this rush, the commerce and finance ministries are sparring over what many believe are turf issues.

But first, some facts about SEZs. The Indian government became enamoured of the idea after witnessing the role played by SEZs such as Shenzhen in transforming China into an export powerhouse. Posit China's 2005 exports of $762 billion (Rs 34,29,000 crore) against India's 2005-06 exports of just over $100 billion (Rs 4,50,000 crore) and the logic behind the fascination becomes a no-brainer. The Chinese model, however, will be difficult to replicate here. Long-drawn out land acquisition procedures and outmoded labour policies are considered a given in India and nobody expects Chinese speed on these issues. There is also the question of scale. "China has five operational SEZs and only another five are on the anvil. And the smallest covers an area of 100 square kilometres," says Nikhil Gandhi, Chairman, skil Infrastructure, who is a director on the board of the Navi Mumbai SEZ.

In India, the government has already given in-principle approvals to about 150 such zones, some of them as small as 10 hectares. Therein lies the rub. Finance Ministry officials want tax breaks restricted to the bigger SEZs to allow for easier implementation. The Finance Ministry expects the current norms to lead to revenue leakage of Rs 20,000 crore. They also suspect that the rush to develop SEZs is a function largely of the incentives on offer and is not really a pointer to any inherent interest in the sector. So restricting the SEZs to sizes above 25 hectares will ensure that smaller SEZ aspirants become part of larger, more manageable units, they believe. "Amidst this hype, people are missing out on the economics of SEZs. Several players are jumping into the fray in the belief that SEZs are a real estate play," says Mukesh Khandelwal, VP, Feedback Ventures, a leading infrastructure advisory firm. Arun Nanda, Executive Director, M&M, who led the team that built Mahindra City near Chennai, agrees. "SEZs are an out and out infrastructure play. Unlike real estate where you can actually work on negative working capital, an SEZ player has to have really deep pockets and staying power," he says, adding that companies planning integrated SEZs of 1,000 hectares or more need to put in at least Rs 1,000-1,500 crore as equity.

The concern is palpable though no one is saying so openly yet: the entry of too many players can skew the field for genuine investors. But this is not to say that the guidelines have nothing to recommend for themselves. It is these very rules that are believed to have attracted players like Flextronics to India. Commerce ministry officials expect over Rs 1,00,000 crore to flow into SEZs over the next three years generating half-a-million jobs.

So clearly, while the much-awaited policy is a welcome step, there are gaps that still need to be plugged. And the empowered Group of Ministers is expected to address just those issues.